Why Yelp Inc. Shares Tumbled Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Yelp Inc. plunged more than 12% Tuesday after a shareholder rights firm launched an investigation into the local business search specialist.

So what: Specifically, Johnson & Weaver LLP is investigating whether Yelp may have violated federal securities laws with misleading statements regarding its "business practices, prospects, and financial condition." The firm says its investigation will center on "the true nature of the reviews appearing on the Company's website, the reliability of the Company's processes and algorithms in screening potentially unreliable reviews, and certain undisclosed business practices including requiring business customers to pay in order to suppress negative reviews."

Now what: While this largely erases last week's gains following Yelp's solid quarterly results, this investigation doesn't guarantee Yelp has actually done anything wrong. What's more, shareholders who weathered Yelp's plunge last monthknow the allegations aren't anything new. In short, I still don't think long-term investors should be selling Yelp based solely on these short-term concerns. Rather, keep an eye on how Yelp responds to its critics -- if it has nothing to hide and uses this to further improve its processes, shareholders could end up better off in the end.

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